Vu Quoc Hao, the former general director of Agribank Financial Leasing Co. No. 2, is charged with embezzling VND531 billion (US$25 million) of state property

Vietnam court will consider the death penalty for two former executives if they're convicted in a US$25 million fraud scheme, signaling an aggressive stance as leaders seek to clean up the banking system.

The People's Court of Ho Chi Minh City may hand down the death penalty for Vu Quoc Hao, the former general director of Agribank Financial Leasing Co. (FLKO) No. 2, who is charged with embezzling VND531 billion ($25 million) of state property. Dang Van Hai, the former chairman of a construction company, also faces the death penalty in the case.

The trial comes as the government seeks to shore up Vietnamese banks saddled with Southeast Asia's highest rate of bad debt and turn around an economy that grew last year at the slowest pace since 1999. The central bank governor vowed to crack down on violations by groups of shareholders working against banking reforms last year.

"It would be a signal: You could be executed for being caught doing large-scale corruption," said Adam McCarty, the Hanoi-based chief economist at Mekong Economics. "It has implications for the whole bank restructuring the government is about to do. They want to really dig into these bad debt issues and find out who is responsible for the problems."

Vietnamese courts held 278 corruption trials this year while the state inspectorate has uncovered 80 new fraud cases involving state funds, according to a government report released yesterday that did not give comparable figures for previous years.

Leasing contracts

Eleven defendants, including Hao, 58, and Hai, are charged with embezzlement, mismanagement, abuse of power and fraud, according to a statement on the court's website. Prosecutors allege that Hao and Hai formed 10 fake financial leasing contracts to disperse almost VND800 billion.

At the trial yesterday, Hao said he regrets his violations and hopes the judges will give other defendants lighter sentences, Tuoi Tre newspaper reported today. The verdict and sentencing is expected to be announced Nov. 15, according to the newspaper.

Nguyen Ngoc Bao, chairman of Vietnam Bank for Agriculture and Rural Development, or Agribank, declined to comment when reached on his mobile phone yesterday.

Under Vietnam law, those convicted of embezzling property valued at 500 million dong or more, or creating "other particularly serious consequences," can be sentenced to life imprisonment or death.

"The party, the government, prosecutors and our courts will give stiff verdicts in these types of cases," Deputy Prime Minister Nguyen Xuan Phuc, said on the sidelines of an anti-corruption conference in Hanoi on Nov. 12. "We need to make our regulations and legal framework tighter to reduce and prevent corruption."

Bank branch

Nguyen Van Tuyen, the former chief executive officer of Hoang Anh Shipping Industry, a unit of the state-owned shipping company, was sentenced in November 2012 to a 20-year jail term for embezzling VND4.5 billion for personal use. The law allowed for the death penalty.

Le Quang Khai, a 30-year-old teller at Agribank, was sentenced to death in July last year for embezzling VND46 billion to gamble, the official Voice of Vietnam reported in July 2012.

It's not unusual for death sentences to be handed down in trials involving lower-level officials, particularly in drug-smuggling cases, while senior officials convicted of corruption frequently face jail time, firing or early retirement, economist McCarty said.

Bad debt

The government is seeking to boost an economy that grew 5.25 percent last year, the slowest pace in 13 years, according to the International Monetary Fund.

Vietnamese banks have the highest levels of non-performing loans among six Southeast Asian countries covered by Fitch Ratings. The government set up the Vietnam Asset Management Company this year to buy bad debt from banks, and it may acquire as much as 150 trillion dong of non-performing loans by the end of 2014, Central bank Governor Nguyen Van Binh said this month.

Small groups of shareholders with vested interests manipulate bank operations and "affect the whole system," Binh said in October 2012. Some Vietnamese lenders are controlled by individuals or small groups of shareholders who take out as much as 90 percent of outstanding loans at some banks, Binh said at the time, vowing to crack down on violations.

"State leadership is extremely aware that its performance with respect to economic governance is perceived as lackluster, and that there is deep concern in Vietnam about corruption," said Jonathan London, assistant professor at the City University of Hong Kong's Department of Asian and International Studies.

"The measures that can really address corruption in an effective manner require a kind of infrastructural power that Vietnam's decentralized state apparatus has real trouble with," he said.